Reading the national media and the trade press to gauge the reaction to the new final rule published in yesterday's Federal Register by the U.S. Federal Trade Commission (FTC) banning contractual covenants to not compete between employees and their employers, I seem to find myself on the opposite end of how many are viewing the new rule.

The rule will have widespread impacts on various industry sectors, but particularly health care. Virtually all radiologists, except for those practicing in states like California that already impose such bans, have non-compete terms in their employment agreements. Anecdotally, I am observing that many radiologists are celebrating the new rule. In the call-out quote below, I note that a prominent medical society comprised of hospital-based physicians – the American College of Emergency Physicians (ACEP) – has expressed support for the new rule. With all due respect to ACEP, I disagree with their position.  I believe weakens their membership. My wish would be for organized radiology - the American College of Radiology and the Radiology Business Management Association - to oppose the new rule. 

During my decades of representing diagnostic radiology groups, I developed my own short list of what I consider to be the attributes of a successful group practice, or at least one capable of being successful.  One of the key elements on my short list is a strong and enforceable intra-radiology group tailing noncompete between the group and its radiologists.

I believe it is vital to the interest of a radiology group that it have noncompetes in place with both non-shareholder and shareholder radiologists. In a contract negotiation with a hospital, the radiology group is a single economic entity and should be able to leverage its integrated group status in those negotiations.

A noncompete agreement by and among a group's radiologists has the effect of assuring that the hospital deal in good faith with the group as a single entity. Candidly, the intragroup noncompetes can make it more challenging for the hospital to replace the incumbent group. Radiologists need leverage sometimes, and this is one feature of their business structure that can lawfully bring bargaining power to the group.

I find it ironic that the American Hospital Association opposes the new rule. Hospitals routinely seek to have radiology groups waive their intra-group non-competes in exclusive professional services contract negotiations. I push back on those requests on behalf of my radiology group clients.

Hospitals have come to understand the potential obstacles that radiology group non-competes with its radiologists create in replacing an incumbent radiology group. If the hospital can contract with a new group that may need to "cherry-pick" from the old group to assure enough full-time equivalents to staff the hospital radiology department, the ability to hire some holdovers from the old group makes it easier to replace the incumbent group. The astute group won't allow itself to be cherry-picked. It says “no” to these waiver provisions, and leverages its integrated group status to its maximum benefit in its securing its relationship with the hospital.

Although the rule does not apply to direct employment with non-profit hospitals, with only some exceptions, radiologists work for radiology groups that are for-profit entities. If the rule goes into effect, radiology groups may lose their vitally important leverage. 

There may be one glimmer of hope in the language of the new rule.  The FTC invalidates existing non-competes with employees who are not “Senior Executives," a term defined in the rule as a person in a policy making position who was paid at least $151,164 in the prior year. Still to be determined is whether radiologists who are owners of their group practices and who clearly exceed this compensation level can be considered to be “Senior Executives” by virtue of their compensation level and their voting authority on key governance decisions that control a significant aspect of a business of the group.

The new final rule was published in yesterday's Federal Register, to become effective 120 days hence on September 4, 2024.

The eyes of the nation's employers are now focused on a lawsuit filed in U.S. District Court for the Eastern District of Texas, Tyler District. The Plaintiffs are the Chamber of Commerce of the United States of America, the Business Roundtable, the Texas Association of Business, and the Longview Chamber of Commerce who seek declaratory and injunctive relief against the FTC over this rulemaking. I expect that a preliminary decision could be rendered prior to the rule's effective date in September.

(The views expressed in this post are my own and not those of Reed Smith LLP.)